General Work Experience

Much of the focus in the literature on entrepreneurs’ human capital has been on their managerial human capital (e.g. Cooper et al, 1994). In this study, however, it is unlikely that the young entrepreneurs would have significant managerial experience, given the age at which they start their first businesses. So first of all an outline will be provided about what is known about entrepreneurs’ broader work experience from previous research of the entrepreneur population, before a section more specifically about what is known about the

managerial experience of older entrepreneurs when they start their businesses. Gimeno et al (1997) analysed the number of full-time jobs of any sort that participants had had separately to managerial experience. They found that, “entrepreneurs with two prior jobs performed better than those with no previous work experience… and entrepreneurs with three or four jobs perform better than those with five or more prior jobs” (Gimeno et al, 1997: 72). They concluded that, “a low number of prior jobs may be associated with a lack of outside alternatives, while a high number of jobs may suggest an inability to perform jobs satisfactorily” (Gimeno et al, 1997: 772), both reflecting a lack of general human capital. Davidsson and Honig (2003) analysed the number of years of work experience participants had prior to start-up, but found there was not a significant relationship between number of years worked and whether an entrepreneur achieved a first sale or profitability. Neither study specifically studied the quality of non-managerial work experience developed by entrepreneurs, whereas this thesis compares the benefits of graduate and non-graduate work experience between participants.

Shepherd and De Tienne (2005: 93) see prior knowledge as “the individual’s distinctive information about a particular subject matter”. Ucbasaran et al (2008) are more precise, distinguishing prior knowledge, which is an aspect of human capital acquired before a business is started, from current knowledge, which is acquired by experience after start-up. Entrepreneurs need three types of knowledge: knowledge of the market; knowledge of ways to serve the market; and knowledge of customers’ problems (Shane, 2000). Fiet (2002) argues more broadly that specific knowledge available to the entrepreneur, but not in the public domain, is likely to be more valuable, and that the more specific that knowledge is, the more important it will be to his/her innovativeness.

Prior knowledge can be gained vicariously (i.e. learning from watching experienced managers at work), or directly from one’s own experience. Whilst formal education is well suited to passing on codified, explicit knowledge (“know what” as described by Davidsson and Honig, 2003: 306), it is widely recognised as being less suited to passing on uncodified, experiential, tacit knowledge (“know how”, Davidsson and Honig, 2003: 306), which is specific to individuals and difficult to communicate (Nonaka and Takeuchi, 1995). While experience does not automatically lead to learning, and the gaining of useful tacit knowledge for the entrepreneur, it can have a significant role in developing technical skills necessary to

grow a business (Ucbasaran et al, 2008) and is significant in developing the entrepreneur’s expertise in strategic decision making (Wiklund and Shepherd, 2003).

Human capital is widely recognised as making an important contribution to how entrepreneurs think, their “cognitive characteristics” (Ucbasaran et al, 2008:155). Prior knowledge is seen as allowing the entrepreneur to be a more efficient decision maker, identifying and focusing on fewer, more relevant, variables, possessing a greater understanding of them, and so be able to take better, quicker and more intuitive decisions (Shepherd and De Tienne, 2005; Ucbasaran et al, 2008). Davidsson and Honig (2003) see prior knowledge both as a foundation for assimilating new knowledge and responding to market opportunities. “Previous knowledge plays a critical role in intellectual performance. It assists integration and accumulation of new knowledge, as well as integrating and adapting to new situations” (2003: 306). Shepherd and De Tienne see those with greater knowledge as capable of a more thorough understanding of the complex issues entrepreneurs often face, because “knowledgeable individuals have created categories of information based on a deep structure that involves more, stronger and richer links between concepts” (2005: 94). Human capital not only provides the entrepreneur with more knowledge, it enhances his/her capacity to process it. Busenitz and Barney (1997) point out that entrepreneurs tend to think differently to managers in large companies, relying more on heuristics (mental short cuts) in their decision making. However, Shepherd and De Tienne (2005) argue that prior knowledge can lead entrepreneurs to focus on familiar options and actions, so that they consider a too narrow range of options, falling into “mental ruts” (Shepherd and De Tienne, 2005:104). Hence entrepreneurs may use heuristics that lead to sub-optimal decisions. So there can be a “dark side to human capital” (Ucbasaran et al, 2008: 155).

Human capital studies measure work experience quantitatively in a variety of ways (e.g. number of jobs, number of years work experience), but less frequently measure the quality of work experience, although Gimeno et al (1997) regard this as important. The quantitative studies give mixed results, so Gimeno et al (1997) found number of jobs did affect the entrepreneur’s performance, but Davidsson and Honig (2003) could not find a link between years of work experience and the performance of an entrepreneur’s new business. In studying young entrepreneurs, general work experience is of particular importance, since they are less likely to have highly developed technical knowledge and skills in the sector they wish to establish their business in as well as managerial work experience. A qualitative study

enables the researcher to investigate both the quality and quantity of the young entrepreneurs’ work experience, but also how they may compensate for the greater work experience of older entrepreneurs when starting a business.